Autumn 2012 Postal Issues Update

U.S. Postal Service Financial Challenges Continue into New Fiscal Year

Financial Situation

The Postal Service is still closing its books on FY2012 that ended September 30, but this much is clear: it was a challenging year for the agency and FY2013 looks to be just as daunting. With that said, the focus of the Postal Service remains on delivering mail.

YTD Oct – Aug FY2012

Change from FY2011

Financials

Total Revenue

$59.9 billion

(0.8%)

Operating Expense

$61.8 billion

(1.0%)

Operating Loss

($1.9 billion)

RHBF/WC Expenses

($12.4 billion)

Net Loss

($14.3 billion)

Volume

Total Mail Volume

147.5 billion

(4.6%)

First-Class Mail Volume

64.7 billion

(5.0%)

Standard Mail Volume

73.3 billion

(5.4%)

In his annual state of the business address to the mailing industry in mid-September, Postmaster General Patrick R. Donahoe emphasized that the Postal Service has a solid business plan to return to long-term financial stability. “The Postal Service is moving forward with the parts of our business plan that we can control,” said Donahoe. “Our industry is fundamentally strong and has a bright future. Mail remains an incredibly effective and important part of marketing America’s products and services.”

Benefit Prepayments

Although the Postal Service was unable to make two required pre-payments into its Retiree Health Benefit Fund (RHBF) totaling $11.1 billion, it issued statements saying, “This action will have no material effect on the operations of the Postal Service. We will fully fund our operations, including our obligation to provide universal postal services to the American people. We will continue to deliver the mail, pay our employees and suppliers and meet our other financial obligations.” The statements also noted, “Postal Service retirees and employees will also continue to receive their health benefits. The health care for current retirees is paid from the Postal Service’s general operating budget and is not affected by the Postal Service’s inability to make the[se] accelerated payments.”

Cash flow

The Postal Service’s revenue this fall has been stronger than originally anticipated due to the large amount of political mail being used this election cycle. As a result, the Postal Service is not expected to face any immediate cash flow issues, but current financial projections indicate that liquidity challenges will remain, with an estimated cash shortfall in mid-October 2013 of $1.2 billion. In addition, the Postal Service in September reached its $15 billion borrowing limit from the U.S. Treasury for the first time in its history, meaning it will have to rely solely on revenues to fund its operations.

The Postal Service’s ability to cope with and function through these financial challenges has proven to be a good news / bad news situation. On the one hand, it is encouraging to the mailing industry to see the ability of the agency to focus on delivery and keeping the mail moving. On the other hand, some members of Congress have noted that the Postal Service is not helping encourage a House vote on postal reform by failing to give members a clearer picture of when it would no longer be able to meet all its obligations.

Legislative Activity

The Postal Service has seen minimal support from Congress toward resolving its financial issues. The Senate passed a postal reform bill in April, but the full House has yet to address postal legislation although Rep. Darrell Issa (R-CA) had proposed including an “interim” postal reform package in the continuing resolution Congress passed in September to fund the Federal government through the first part of FY2013, which began October 1. “Although there are ongoing discussions among legislators and stakeholders concerning how to move a full postal reform package forward, it is unlikely that a final comprehensive agreement could be negotiated between both chambers in that narrow time frame in September,” Issa wrote in a Sept. 7 letter addressed to President Barack Obama. If passed, Rep. Issa’s interim measure would eliminate Saturday delivery, prohibit layoff protections in future contracts, and defer retiree health benefit pre-payments until the Postal Service is able to implement cost-cutting reforms. The measure does not include the control board and facility closure commission included in the full postal reform bill proposed by Rep. Issa.

There is some speculation that the House may take up a simplified postal reform measure in the Lame Duck session after the elections, but the partisan climate in Washington will make that difficult.

Status of Postal Service Initiatives

USPS management continues to move forward with those elements of its proposals that it can control without congressional or regulatory support. The status of the major initiatives includes:

Delivery frequency: The Postal Service is ready to implement a five-day per week delivery schedule, but is prevented from doing so by current law. Five-day delivery has met stiff opposition from rural law makers, but would be permitted by the primary House bill. The primary Senate bill would postpone reduction in delivery frequency for at least two years after passage of the bill.

Network optimization:The Postal Service completed Phase 1a of its network optimization program over the summer, consolidating 46 facilities. While most of these consolidations were of smaller plants, the process seems to have gone smoothly, with little disruption to the flow of mail. Phase 1b will begin in early 2013 and result in the consolidation of about 90 additional facilities. An announcement of which facilities will be consolidated in this phase is expected in November.In September, the Postal Regulatory Commission (PRC) issued an “advisory opinion” regarding the Postal Service’s proposal to alter service standards as a result of consolidating its network of mail processing facilities. While the PRC analysis projected lower projected net savings for streamlining the network of processing plants than asserted by the Postal Service. The PRC praised the Postal Service for its phased implementation approach that allows the opportunity to study the effects of the changes and make adjustments as implementation progresses. Although the Postal Service has yet to respond to the ruling, the opinion is not expected to result in significant changes to the facility consolidations planned for 2013.

Workforce: The Postal Service continues to pare back its workforce to better match current mail volumes. At the end of June, the Postal Service workforce totaled about 530,000, down from a high of more than 900,000 twelve years ago. It recently announced a $15,000 buyout offer coupled with an early retirement package for longer-serving members of the American Postal Workers Union (APWU) to encourage early retirement. Of the 188,000 clerks, drivers and other employees represented by the APWU who are eligible for the program, more than 60% were already retirement eligible. The Postal Service has said it hopes to incent about 20,000 APWU members to take the buyout. Nearly 3,000 mail handlers and 4,200 postmasters had taken similar buyouts earlier this year.

Postal Service Announces January 2013 Price Changes

The Postal Service has sent its 2013 pricing proposal to the Postal Regulatory Commission (PRC) for approval. PRC consent to the new price structure is expected in late November, with the price changes taking effect January 27, 2013. The average increase for both First-Class and Standard Mail is 2.57%. Standard Mail letters will receive a slightly above average increase of 2.72%. The pricing tier structure for Standard Mail automation letters will change so that 3-digit and AADC mail will receive the same rates.

There will be a new tier for walk-sequence carrier route mail: High Density Plus. High Density Plus requires 300 pieces per route, compared to 125 for traditional High Density. High Density Plus is priced between traditional HD and Saturation rates.

There is also a new price for First-Class single-piece residual letters, which offers some advantages and disadvantages. Since “single-piece residual” will be part of the presorted First-Class mailstream these pieces will be eligible for various types of discounts they were not eligible for in the past. These discounts include Full- Service, second ounce free, and some promotions. However, this rate has been set at 48¢, rather than the retail single-piece rate of 46¢, which would make the retail rate less expensive for many mailers.

2013 Postal Service Promotion Calendar Announced

In conjunction with its 2013 pricing proposal the Postal Service has also submitted to the PRC its full calendar of promotions for 2013. The agency hopes the advance notice will allow more mailers to take advantage of the various incentives to be offered next year. A brief description of each of the promotions is given below. Your IWCO Direct account team can provide additional information on all of the programs.

Mobile Coupon and Click-to-Call | Dates: March 1 – April 30

Discount: 2% of eligible postage

Mobile Coupon: The physical mailpiece must be a coupon using print-to-mobile technologies (such as QR codes) that allow the recipient to store the coupon on a mobile device. The discount must be offered only to mailpiece recipients, and the coupon must be redeemable as either a physical document or from a mobile device.

Click-to-Call:The physical mailpiece must use print-to-mobile technologies (such as QR codes) that links directly to a mobile optimized website with a “click-to-call” link or brings up a phone number automatically in the users’ phone.

Earned Value Reply Mail | Dates: April 1 – June 30

Mailers must register permits and Mailer IDs (MIDs) to be used on reply mail. The Intelligent Mail Visibility (IMVIS) system will send scan data to the Alternate Postage system. All BRM and CRM mailpieces containing the registered MID(s) that are returned by the mailers’ customers will earn a 2¢ rebate. The rebate will be credited to a predetermined permit imprint account at the end of the promotion. The mailer can apply the credit to future mailings of Standard Mail letters and First-Class Mail automation and presort letters.

Picture Permit | Dates: August 1 – September 30

Discount: normal fees for this service will be waived during the promotion period

Picture Permit allows customization of the permit indicia space with a business-related image such as a company logo, trademark or brand to improve the mailpiece’s visibility, impact and ROI. Only color images may be used. Mailers must be preapproved to use Picture Permit. The Postal Service recommends beginning the registration process for Picture Permit at least six months prior to mailing.

Emerging Technology | Dates: August 1 – September 30

Discount: 2% of eligible postage

Mailpiece must support at least one of the following technology innovations:

Near-Field Communication: The mailpiece must contain a NFC smart tag or RFID chip that allows information to be transferred from the mailpiece to a mobile device (such as uploading a mobile coupon to a mobile wallet when scanned by a mobile device).

Augmented Reality: The mailpiece must support an augmented reality experience that is facilitated by a mobile device or computer. The augmented reality experience must combine real and virtual, be interactive in real time, and register in 3-D.

Authentication:The mailpiece must integrate the attributes of physical mail, including delivery to a physical address, with mobile technology that allows a user to complete authentication for customers, prospects, or mail recipients. Prior approval from the USPS program office is required for this option.

Product Samples | Dates: August 1 – September 30

Discount: 5% of eligible postage

Discount will be given for qualifying Standard Mail Marketing Parcels that contain product samples.

Mobile Buy-It-Now | Dates: November 1 – December 31

Discount: 2% of eligible postage

The physical mailpiece must be a coupon using print-to-mobile technologies (such as QR codes) that leads to a mobile optimized web page that allows the recipient to purchase an advertised product through a financial transaction on the mobile device. Qualifying financial transactions include electronic payments (such as credit, debit or payment cards), person-to-person payments (such as PayPal), “bill me later,” or payments added to recurring bills.

Postal Briefs

Intelligent Mail Barcode will be required to Claim Automation Discounts in January:

Beginning January 27, the POSTNET barcode will no longer earn automation discounts for mailers. At that time, only mail bearing an Intelligent Mail barcode (IMb) will qualify for automation discounts. Either Basic or Full-Service IMb will earn automation discounts in 2013; however, beginning in January 2014 mailers must be using Full-Service in order to claim automation discounts.

IWCO Direct supports all requirements of the Full-Service program. Be sure to ask your account team if you have questions about transitioning to IMb or participating in Full-Service.

Folded Self-mailer Regulations Take Effect January 5, 2013:

New folded self-mailer regulations have been optional for the past year, but the transition period expires on January 5, 2013. These rules are similar to changes in requirements for letter-sized booklet mailers, introduced in 2009. Common themes in the new standards are:

Smaller maximum size, generally 6” x 10.5”.

Final fold must be at the bottom or to the right of the address.

Final fold panel is the non-address side of the mailpiece.

Larger, non-perforated tabs – for most of the simplest designs 1” tabs are OK (glue also remains an option).

For most simple designs, two tabs (or a glue line) at the top of the mailer is sufficient.

These are very complex regulations, designed to allow a variety of options, so the answer to the question “What is allowed?” can vary based on factors such as piece size, piece weight, and paper stock used. If you have questions about how the new rules may affect your self-mailers, contact your IWCO Direct account team.

Labor negotiations:

The Postal Service and the National Rural Letter Carriers Association (NRLCA) had gone to binding arbitration to resolve their contract dispute. The arbitration panel issued its award in early July, granting a 3.5% wage increase over three years, a separate wage schedule for carriers hired in the past two years, and a reduction in the health benefit contribution paid by the Postal Service.

The Postal Service is also in binding arbitration with the National Association of Letter Carriers (NALC) and the National Postal Mail Handlers Union (NPMHU), but no awards have been issued for those contracts.

Study Shows American Public Open to Postal Changes:

A recent national Monmouth University Poll shows that most Americans are very satisfied with the postal service they currently receive and proposed changes would not impact their use of the Postal Service. Some of the poll’s other findings include:

75% say their use of the Postal Service would not change if Post Offices were closed on Saturdays;

50% say they would not be bothered if the Postal Service was privatized as a cost-cutting measure.

In addition, 33% of Americans say they would be more likely to use postal services, such as mailing packages and purchasing money orders, if they were made available in places like supermarkets and pharmacies.

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